The Central government will guarantee the Rs 5,000 crore bond issue by the Indian Railway Finance Corporation (IRFC) to be subscribed by state-run Life Insurance Corporation (LIC) according to an official announcement on Monday.
A Finance Ministry release here said the move will further ease the flow of borrowed funds for the Railways Ministry to undertake projects.
"The Ministry of Finance has approved the Government guarantee of Rs 5,000 crore in the current financial year for the IRFC bonds to be subscribed by the Life Insurance Corporation (LIC)," it said.
The Railways Ministry had signed an MoU with LIC in March 2015 under which the latter is required to provide financial assistance of Rs 1.5 lakh crore for identified projects between 2015 to 2019.
The IRFC has accordingly been raising funds from LIC by issue of bonds having a tenor of 30 years and remitting the same to the ministry for undertaking projects.
However due to exposure limit constraints under the insurance regulator IRDA's guidelines, LIC has not been able to subscribe to IRFC bonds beyond a certain limit, the statement said.
"In order to overcome the exposure limit constraint, the Ministry of Finance has approved the government guarantee so that LIC can subscribe to the government guaranteed bonds without any limit as per IRDA guidelines," it said.
The guarantee fee for the amount has also been waived by the ministry, the statement added.